Stanbic Bank Kenya PMI - New business growth quickens to 14-month high, despite record-low optimism

Key findings

• Output and new order growth accelerate further
• Employment and purchasing continue to rise
• Business confidence drops to eight-year series low

Kenyan firms saw a further strengthening of output and new business growth at the end of the year, according to the latest PMI data. Overall sales volumes rose at the fastest pace since October 2020, driving further uplifts in purchasing, inventories and employment. However, business optimism dropped to the lowest level in the eight-year series history amid record-high COVID-19 cases.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The PMI rose for the third straight month to 53.7 in December from 53.0 in November. The reading was the highest recorded in 14 months and pointed to a solid improvement in the health of the private sector economy.

Driving the upturn was a further strong increase in new work intakes at Kenyan firms. The pace of growth was the strongest seen since October 2020, as panellists commented on improving customer demand and better cash flow as economic conditions recovered further from pandemic measures.

Subsequently, output levels rose sharply and at the fastest rate since the beginning of 2021. To manage higher workloads, companies also raised their staff levels, though the pace of job creation was only modest and softer than November's two-year high. Nevertheless, this allowed firms to lower their backlogs of work for a second month in a row.

More negatively, business confidence for the upcoming year dropped in December. In fact, the level of sentiment was the weakest seen since the survey began in January 2014, with just 19% of respondents giving a positive outlook. While there were hopes of expanding premises and offering new products and services in 2022, optimism fell as COVID-19 cases rose to a record level.

December data also indicated a sharp increase in input costs across the private sector, though the rate of inflation eased slightly to a three-month low. Higher prices for raw materials were often noted due to ongoing supply issues and stronger demand. Meanwhile, purchasing activity increased at the joint-fastest pace seen in 2021, as firms reported efforts to build inventories in the face of strong new order inflows.

Output charges were also raised at the end of the year, which businesses stated was largely due to higher demand and cost burdens. Notably though, the rate of inflation softened for the first time in four months and was the least marked since September.

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